Many people want to live in, and for that matter invest in, countries with strong free market principles and rule of law.
This article will look at some of the world’s strongest free market economies in the world in 2021.
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Table of Contents
The government strictly controls the economies of some countries. In a planned economy or a command economy, the government controls the means of production and the distribution of wealth by dictating the prices of goods and services and the wages that workers receive. In a free market economy, production and labor are not regulated by the central government, but by the law of supply and demand.
Companies sell goods and services at the highest prices that consumers are willing to pay, while workers receive the highest wages that companies are willing to pay for their services. A purely capitalist economy is a free market economy; profit motivation drives all trade and forces businesses to operate at peak efficiency so as not to lose market share to competitors.
As you can suppose, in this article we will talk about free market in general, it’s definition, advantages and disadvantages and of course list some of the strongest free market economies. Now let’s see what exactly free market economy is and figure out its functionality.
The free market economy is an economic system based on the principles of free enterprise, a variety of forms of ownership of the means of production, market pricing, contractual relations between business entities, limited state intervention in the economic activities of entities.
Free market economies and command economies exist more as concepts than tangible realities; almost all economies in the world have elements of both systems and belong to a mixed economy.
For example, while the United States allows companies to set prices and workers to negotiate wages, the government sets parameters such as minimum wages and antitrust laws that must be followed. In addition, most countries have some type of taxation and import and export duties.
In other words, a free market, an unregulated system of economic exchange in which taxes, quality control, quotas, tariffs, and other forms of centralized economic intervention by the government are either absent or minimal.
Since the free market is a benchmark that does not really exist, modern societies can only come close to or approach this ideal of efficient allocation of resources, and it can be described in the range from low to high levels of regulation.
Main features of free markets
The market economy is based on the principles:
- variety of forms of ownership of the means of production;
- market pricing;
- contractual relations between business entities (people, enterprises, etc.);
- limited government intervention in economic activities.
- variety of forms of ownership (private, collective, state, communal);
- complete administrative independence and independence of the commodity producer – the commodity producer must be the owner of the results of his labor;
- free choice of suppliers of raw materials and buyers of products;
- customer-oriented market.
Possesses the following properties:
- market pricing does not imply any government intervention;
- any government intervention in the economy is limited.
Definition of a market economy
The following six characteristics will define a free market economy and make it more comprehensive for you.
Private property – Most of the goods and services are privately owned. Owners can enter into legally binding contracts to buy, sell or lease their property. Their assets give them the right to the profits of ownership. Certain assets are excluded by US law. For example, since 1865, you cannot legally buy and sell people.
Freedom of choice – Owners are free to manufacture, sell and buy goods and services in a competitive market. They only have two limitations. First, the price at which they are willing to buy or sell. Second, the amount of capital they have.
Personal gain motive – Everyone sells their goods to the highest bidder while negotiating the lowest price for their purchases. While the cause is selfish, it benefits the economy in the long run. This auction system sets prices for goods and services that reflect their market value. It gives an accurate picture of supply and demand at any given moment.
Competition – The power of competitive pressures keeps prices low. It also ensures that the community is most efficient in providing goods and services. As soon as the demand for particular good increases, prices rise due to the law of demand. Competitors see that they can increase their profit by generating it by increasing the supply. This brings prices down to a level where only the best competitors remain. This competitive pressure extends to workers and consumers as well. Employees vie with each other for the highest paying jobs. Buyers compete for the best product at the lowest price.
System of markets and prices – A market economy relies on an efficient market in which goods and services can be sold. This is where all buyers and sellers have equal access to the same information. Price changes are a pure reflection of the laws of supply and demand. There are five determinants of demand: product price, buyer’s income, prices for related products, consumer taste, and buyer’s expectations.
Limited government – The role of government is to ensure that markets are open and functional. For example, he is in charge of national defense to protect markets. It also ensures that everyone has equal access to the markets. The government punishes monopolies that restrict competition. This ensures that no one is manipulating the markets and that everyone has equal access to information.
The advantages of a free market economy
Since the market economy allows the free interaction of supply and demand, it ensures the production of the most desirable goods and services. Consumers are willing to pay the highest price for what they want the most. Business will only create things that are profitable.
Second, goods and services are produced in the most efficient way. The most productive companies will earn more than the least productive ones.
Third, innovation is encouraged. Creative new products will better meet consumer needs than existing products and services. These cutting-edge technologies will spread to other competitors, so they can be more profitable too. This knowledge sharing shows why Silicon Valley is America’s innovative strength.
Fourth, the most successful companies invest in other top-notch companies. This gives them an advantage and leads to better product quality. Interaction with other people
The disadvantages of a free market economy
The key mechanism of the market economy is competition. As a result, it lacks a system of caring for those at a competitive disadvantage. This includes the elderly, children, and people with mental or physical disabilities.
Second, the guardians of these people are at a disadvantage. Their energy and skills are directed towards caring, not competition. Many of these people could contribute to the overall comparative advantage of the economy if they were not cared for.
This leads to a third disadvantage. The human resources of a society cannot be optimized. For example, a child who might otherwise have found a cure for cancer might instead work at McDonald’s to support their low-income family.
Fourth, society reflects the values of the winners of the market economy. A market economy may produce private jets for some while others are starving and homeless. A society based on a pure market economy must decide whether it is in its personal interest to care for the vulnerable.
If it decides that it does, society will give the government a significant role in reallocating resources. This is why many market economies are also mixed economies. Most of the so-called market economies are mixed economies.
Now it’s the right time to list some of the powerful countries that maintain in the top of strongest free market economies in 2021.
- Honk Kong
- New Zealand
All we know that China is one of the developed countries in the world, with forceful economy, and why now market economy.
While personal freedom is not part of the equation in China, capitalism is flourishing. And for the most part, China does a better job of dealing with capitalism than the United States – in fact, better than most countries. Although China is still communist, at the moment it is the most well-descriptive thing to say about the country.
In recent years, China has shown itself to be more resilient to recession than most countries. While the US government loves to claim that it is created “for the people” and is influenced by individuals, it usually acts in its own interests. So there is very little change that really benefits the market.
In China, the system is designed to encourage entrepreneurship. There is also a general cultural affinity for capitalism. It’s the same in Vietnam. While this sounds ironic, these are places where people work very hard, are interested in money and in starting a business. This naturally creates a free market economy.
The government tolerates this because it admits it is the only way out. Of course, tolerance is not as good as open arms, but it’s better than actively fighting the culture of the free market and saying that this is not what you have built.
In addition, the Chinese government has the ability to move faster because it is not tied to the comforting but useless “checks and balances” that Americans claim are keeping them free.
While special interests dominate America’s democratic government, there is no room for such an impasse in China. Yes, the Chinese government can be rough on its citizens, but it can also be more adaptive and reform quickly without being burdened by corporate bribes.
Hong Kong ranked first in 2012 with a score of 89.9 out of a possible 100. The four main categories cover the rule of law, how limited the role of government in business is, the effectiveness of regulation, and the extent to which the economy embraces the open market.
The study specifically mentions Hong Kong’s strong legal framework, especially property rights and general support for the rule of law. He also thanked Hong Kong for its low tolerance for corruption to maintain the effectiveness of its regulation.
The study noted several steps in the wrong direction since 2010, such as the introduction of a minimum wage that is contrary to the open market and, to a greater extent, leads to ineffective regulation, but this was not enough to displace Hong Kong from the position of the most economically free in the world country (or rather, the Special Administrative Region).
Traditionally considered the freest economy in the world, Hong Kong remains one of the most capitalist countries and the strongest free market economies. There are practically no tariffs, and a small government is a recipe for capitalist success.
Although it is technically a “Special Administrative Region” of China, it is itself an independent free market. Hong Kong’s gross domestic product (GDP) per capita at over $ 40,000 is one of the highest in the world, more than four times that of China.
There are signs that clan capitalism is now infiltrating city-states. However, it still has a more capitalist culture in which business is a priority. It is also one of the best and easiest places to start an offshore company.
Despite the political and social unrest in Hong Kong last year, Hong Kong’s banks and businesses continue to live. One of the benefits of going to the place where you are best approached is that you can get all the benefits of doing business locally without having to solve problems locally. Hong Kong is a great example of this.
Like Hong Kong, Singapore’s capitalism is under the threat of growing nepotism. However, the small island nation still needs to be mentioned when discussing the strongest free market economies. As in China, the government does not particularly value personal freedom, but in essence supports the interests of business and adapts to changes in the market.
Singapore has also become the “Asian Switzerland” for banking (much better than Switzerland now). In Singapore, the rules are much less strict than in the United States.
For example, you can transport up to S $ 30,000 (about US $ 24,000) to or from a country without asking any questions. (Compare this to the $ 10,000 limit.) You can also buy and sell gold and silver bars in Singapore tax-free.
Singapore scored 87.5 points, finishing second behind Hong Kong. As will become evident among the leading countries, and also noted in Hong Kong, Singapore stands out from the rest of the world with its strong property rights and anti-corruption efforts.
A according to the study also mentions an efficient Singapore government that maintains low costs as well as low taxes for companies residing within its borders. The country encourages open trade and also ranks well in terms of investment offer and financial freedom.
The government is actively involved in “leading economic development,” which can be seen as overregulation, but it appears to be only encouraging a free market economy for now.
Located in the Balkans, south of Serbia, Macedonia has made great strides towards free market policies over the past decade.
The country is becoming more and more business-oriented with 0% tax zones, free trade zones and 10% corporate tax. In addition, it only takes two days to open a business in Macedonia, and there is no minimum capital requirement.
The country is working to become more transparent and create a more flexible labor market after years of unemployment.
While property rights and corruption remain a concern in the country, there have been notable advances in freedom of trade, regulatory effectiveness and fiscal freedom. Thanks to these reforms, the business sector is growing in Macedonia.
Foreign and domestic investors are treated equally and if you are ready to start a business and hire local workers, you can become a Macedonian citizen in just a year. The program specifically targets entrepreneurs who can invest at least € 400,000 for at least three years.
Macedonia is one of the many countries in Eastern Europe that adhere to the principles of the free market, striving for more growth and development. The leader and trendsetter in this area is, of course, Estonia, which adopted the free market policy as soon as it emerged from the rule of communism.
Capitalism has worked well for Estonia and many countries that have followed suit. In fact, the last country on this list is another post-Soviet government following in the footsteps of Estonia.
Australia scored 83.1 points in 2012, finishing third in the respected annual ranking. Australia’s strengths include strong property rights, high freedom from corruption, low government spending, and high levels of business, labor and monetary freedom.
More specific factors cited include an independent judiciary and low public debt. This latter factor is in stark contrast to other developed countries in the world, which are currently experiencing heavy debt burdens and financial precariousness.
Australia has been deregulated since 1980 and has worked hard to reduce norms in its economy as well as to encourage free trade with neighbors such as China.
New Zealand was not far behind its neighbor Australia in the 2012 ranking, with a total of 82.1 points. There are strong property rights, low government spending, high business, labor, monetary and commercial freedoms.
The study notes a high degree of economic resilience, which manifested itself in a relatively rapid economic recovery after the strong earthquake in 2011, which hit the economy but did not lead to a prolonged recession or severe downturn. On the contrary, Japan is still trying to recover from an equally devastating earthquake.
Switzerland stands out for its location far beyond the Asian region. Its rating was 81.1, which means the leading position in Europe as the freest economy in the region. Its strong property rights result in attractive intellectual property protections that are highly valued by medical and other companies.
The study also mentions an independent judiciary that “ensures the efficient and transparent execution of commercial contracts.” Finally, the key is to support open trade, as well as a strong and stable regulatory environment that allows companies to feel comfortable in Switzerland and continue to operate and develop their activities.
Here is what we have found during our researches, and definitely it was supposed that China, Honk Kong or Singapore could have the strongest free market economies, but no one was expecting that Macedonia or Australia could be in the top too.
To sum up let’s note that the term “free market” is sometimes used synonymously with liberal capitalism. When most people discuss the “free market,” they mean an economy with unhindered competition and only private transactions between buyers and sellers. However, a broader definition should include any voluntary economic activity that is not controlled by coercive central authorities.
To use this description, laissez-faire capitalism and voluntary socialism are examples of the free market, even though the latter includes common ownership of the means of production. The most important feature is the absence of coercive measures or restrictions on economic activity.
The ratings of the above countries are the only eight that are truly considered “free”. These are some of the strongest free market countries in the world. While they may not look like we’ve introduced (and should not be confused with the general level of freedom), these are countries where capitalism is still welcomed.
Be aware of these countries while striving to keep your money and business safe. We hope our guide helped you somehow to get enough information about free markets and countries with strongest market economies.
In the articles below I focused on:
- How likely is it that the stock market will crash if there isn’t government stimulus in 2021? Are the two issues, stimulus and the stock market, really correlated?
- What are the alternatives to direct property investments? I look at REITS and loan notes, but what have been the returns and positives and negatives associated with these investments?
- Is economic collapse and hyperinflation likely in 2021 or 2022? Should we really listen to merchants of gloom who said the same thing in 2008-2009 due to 0% interest rates and QE over a decade ago?
- What is the value of wealth in reality? Is it just money or the ability to have choices, gain freedom and do things you otherwise couldn’t do?
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